Paulson lobbies for mortgage rescue plan

Washington -- U.S. Treasury Secretary Henry Paulson Jr. said Tuesday that two troubled mortgage giants should remain in the hands of shareholders.

Speaking to members of the U.S. Senate Committee on Banking, Housing and Urban Affairs in Washington Paulson, outlined the Treasury's three-step plan to restore confidence in the Federal Home Loan Mortgage Corp. and the Federal National Mortgage Association.

The plan includes extending lines of credit for the companies to $300 billion, allowing the Treasury to purchase equity in the companies on a temporary basis and giving the Federal Reserve a regulatory role in the two government sponsored enterprises, known as GSEs.

"We have long maintained that the GSEs have the potential to pose a systemic risk," Paulson said.

That risk can be measured by Freddie Mac and Fannie Mae's involvement in "70 percent of new mortgages," and their role as "the only functioning secondary mortgage market," Paulson said.

Although leaning on taxpayer dollars, Paulson repeated his position that the two companies should remain in private hands. "As I have said, we support the current shareholder-owned structure of these enterprises," he said.

Copyright 2008 by United Press International.